Financial planners warn we still don’t know the full impact of the new tax
A major new tax on pensions is coming in(Image: Getty)
Families face further administrative burden as a new tax is being brought in on pensions. A financial planning group has warned that people will need to have a list of details in order when the new rules come in soon.
From April 2027, the remit of inheritance tax is to expand to include certain unused pension funds. Experts at independent advice group Hymans Robertson have urged people to read up on the new rules. Angela Davis, chartered financial planner with the firm, said: “It is important not to panic but do understand how the value of your estate will be impacted.” Inheritance tax is a 40 per cent levy that has to be paid on the total value of an estate when it is passed on, above certain individual allowances.
Despite the new tax regime taking effect in less than six months’ time, the Government has yet to explain exactly how the new tax will work. Ms Davis spoke about what details we are still waiting for.
More details this autumn
She said: “HMRC are still publishing technical notes and guidance about the changes and have said that full guidance and supporting materials are planned for spring 2027. An additional technical note is expected this autumn with more detail on international aspects, intestacy, charities and trusts. So until this is in place we won’t know the full impact for pensions.”
Under the current allowances, you can pass on up to £325,000 in total assets without paying the levy, as well as an additional £175,000 when passing on your main residence to a direct descendant. Another key rule to note is that you can pass on any of these allowances that you have not used yourself to your spouse or civil partner when you die.
This means when they die, their estate could effectively have double the standard allowances applied to it, so they could potentially pass on £1million in assets tax-free, if these included their main home going to a direct descendant.
‘Increased duties’
Although we don’t know all the specifics of the new tax, there will definitely be more admin for many families. The financial expert said: “What we do know is that personal representatives (executors) will have increased duties and administration burden as they will be responsible for locating and listing every pension scheme which the deceased held and providing valuations to include in the estate valuation.”
She said that, given these extra requirements, people should keep records of certain details of each of their pensions. These include:
- The provider
- The plan number
- A contact telephone number
Two-minute check
Another item of paperwork for pension holders to keep up to date is your beneficiary nomination, also sometimes known as the expression of wish. This indicates who you would like your pension to be paid out to when you die. You can put down more than one person.
Ms Davis warned people often overlook this key document. She said: “Pensions do not automatically follow a will and often people forget to complete the information or it is out of date. This can be done by contacting the pension provider and only takes a couple of minutes.”
The new rules also serve as a reminder that there are certain financial documents we should all keep up to date. Ms Davis said: “Every adult should have a will in place and ensure that on life events (marriage, children, divorce for example) that it is kept up to date and mirrors your wishes.”
You may want to check your expression of wish for your pensions when you go through one of these life changes. If you split up with a partner and they are still nominated to get your pension, they may receive the funds when you pass away.
An HMRC spokesperson said: “More than 90% of estates will still pay no inheritance tax, including on pension funds. We want to help people get their tax right and we’re continuing to provide information about how the taxation of unused pension funds and death benefits will work.“We’ve published detailed notes to provide further clarity, and will publish further guidance ahead of the changes coming into effect.”
